Bad Credit Car Loans Are Still Possible - Even With Our Struggling Economy
You’ve just learned that your request for an auto loan with XYZ Bank has been denied. The loan officer explains that the decision has to do with your credit score . XYZ lends only to prime borrowers; your credit score, she continues, places you squarely in subprime territory.
Subprime. You’re not sure exactly what it means, but it sounds like a condemnation that will forever brand you as being somehow deficient to lenders.
However, being deemed subprime doesn’t necessarily mean that your borrowing days are over. It may still be possible for you to get that sought-after car loan. That’s why you should be pre-approved before you go car shopping. Being pre-approved means that you can confidently walk into the dealership knowing that you are in control of the financing not the dealer. You will know what price range you are approved for ahead of time. Of course you will want to leave room for tax, licensing and gap insurance. The dealer will try their best to move you into a higher priced car and handle the financing for you – beware! That’s in their best interest, not yours.
But first you need to understand the term that defines you. A subprime borrower is one with bad credit. Each lender has its own definition of what constitutes a subprime borrower, but typically, a credit score of less than 620 lands you in this less-than-desirable category. For more information on credit scores, and what sort of factors cause them to suffer, please see our article on how credit works . There are plenty of credit lenders specializing in subprime lending who are eager and willing to loan money to those with bad credit. Naturally, though, there’s a catch. The interest rates for subprime borrowers are higher than if you have pristine credit – but it is not un-affordable.
So, now that you understand what your playing field looks like, how can you finesse the game in a way that gets you a reasonably priced car loan? Here are a few tips:
Check Your Credit Report
Make sure that everything on your report is accurate; it could be that information has been entered in error, and that your credit history is a lot less blemished than you’ve been led to believe. If you do find information on your report that is inaccurate, you need to address it right away. Contact the credit bureaus in writing, listing your name and address and clearly detailing the nature of the error. Access Your Credit Score For a long time, credit scores were available only to prospective lenders, who used them to evaluate those seeking loans. That has changed; it’s now possible for consumers to access this all-important number. Your score is available online from each of the three credit bureaus: Trans Union, Experian and Equifax. If you’ve got bad credit, it’s helpful to know it beforehand. Knowing your credit score will help give you a sense of exactly where you stand in your search for an auto loan.
Don’t Rely On The Dealer
Dealers take a cut of all car-financing deals they land; as a result, any loan that they’re able to get you with a bank or financing company is likely to wind up being more costly to you. Get pre-approved (not the same as pre-qualified) for your loan first. Ideally, you’ll want to secure your auto loan before setting foot inside the dealership.
Remember That Your Credit Score Is Malleable And Ever Changing.
When it comes to your credit history, the ball is entirely in your court. You can improve your bad credit by paying your bills on time, and not overextending yourself when it comes to loans and credit cards. If you have items that are out-dated or incorrect on your credit report these can be removed legally . With proper attention paid to the state of your credit, you could conceivably hoist yourself out of subprime territory in as few as two or three years. Going forward, check your credit score at least once annually. You may have to pay more than you’d like for the auto loan you’re about to receive, but in a couple of years, if your credit score has improved, you’ll probably be able to refinance your loan at a much lower rate.
By Warren Clarke, Automotive Content Editorwww.edmonds.com
